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Related Lending

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  • Rafael La Porta
  • Florencio Lopez-de-Silane
  • Guillermo Zamarripa

Abstract

In many countries, banks lend to firms controlled by the bank?s owners. We examine the benefits of related lending using a newly assembled dataset for Mexico. Related lending is prevalent (20% of commercial loans) and takes place on better terms than arm?s-length lending (annual interest rates are 4 percentage points lower). Related loans are 33% more likely to default and, when they do, have lower recovery rates (30% less) than unrelated ones. The evidence supports the view that rather than enhance information sharing, related lending is a manifestation of looting.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8848.

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Date of creation: Mar 2002
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Publication status: published as La Porta, Rafael, Florencio Lopez-de-Silanes and Guillermo Zamarripa. "Related Lending," Quarterly Journal of Economics, 2003, v118(1,Feb), 231-268.
Handle: RePEc:nbr:nberwo:8848

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